Apple rarely enters new markets. When they do, it instantly becomes the best product in the category. That’s the case with Apple Vision Pro, which is packed with category-leading technology including cameras, displays, motion sensors, and AI controls, plus integration of Apple’s best-in-class app ecosystem.

From a product design standpoint, Apple clearly understands one of the reasons why competing VR headsets have failed thus far: those devices block users off from the real world. Humans have a primal instinct to see and be connected to their surroundings. It’s a subtle but important vector to the adoption of wearables. Vision Pro uses high-fidelity cameras to enable the user to “see” the real world through a fully enclosed headset.

The Vision Pro’s distinctly natural user interface controls also stood out. The Macintosh had the mouse, iPod had the click wheel, iPhone had the touchscreen, Apple Watch had the digital crown. Vision Pro is controlled by eye movements to navigate menus, hand gestures to select, scroll, and expand, and voice to add text. You can also control the device with a Bluetooth keyboard and mouse. Most headsets on the market today struggle to solve the UI challenge because it requires both cutting-edge vision hardware and a healthy dose of AI to accurately use eye tracking, gestures, and voice as inputs.

There are two outcomes that matter when it comes to modeling the impact of wearables to Apple’s business.

1. It’s a flop. I believe most investors expect the product to be closer to a disappointment than a success. In that case, the impact on the model resembles the Newton. The product underwent six years of development and was on the market for five years (1993-1998) before Steve Jobs killed it. While Newton’s failure to find a market was a drag on earnings, it did not risk sinking the company. At the time, Apple’s central challenge was related to falling Mac market share. If the Apple Vision product line is a bust it would add fractional revenue and the estimated $25B in expenses related to development and marketing over the next five years would have a modest 3-4% negative impact on earnings.
2. It’s a hit. This outcome will take time given the $3,500 starting price point. In my view, it won’t be until 2027 that a base-level Vision product reaches a $1,000 consumer-friendly price point. That may seem like a high mass adoption price but the iPhone has that status with an average selling price of $850. The utility of spatial computing will come eventually and will drive wide adoption at that $1,000 price point.  In this scenario, unit growth will be modest at around 20% a year through 2026, accelerating to 60% in 2027 once the price declines. By 2030 (its eighth year), I believe Apple could sell 75m Vision units,  which compares to the Apple Watch reaching just around 45m units in its eighth year in the market. 75m units at $700 would generate around $53B in revenue. Assuming Apple grows its top line by an average of 5% per year through the end of the decade (which yields total revenue in 2030 of about $550B), the Vision segment would account for about 10% of total Apple sales in 2030.

Another perspective on how Apple views the opportunity. The company now lists “Vision” in its homepage menu along with “AirPods” and “Watch”. Notably, Apple TV does not make the menu cut. AirPods and Watch are each about 5% of Apple’s revenue; Apple TV is closer to 1% of revenue. Herein we have a rough gauge indicating that Apple believes the Vision lineup will account for at least 5% of sales long-term.

Putting it together, I believe the Vision category will be more important to Apple’s business than Apple Watch or AirPods, but less important than the iPhone. My thoughts on the iPhone’s place in Apple’s product lineup have changed since I started writing on Apple wearables in 2017. At the time I saw the headset as a replacement for the phone. Now I expect the wearable to be complementary to the iPhone long-term.

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